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Financial Capacity Building

Obtain Adequate Cost-Recovery

In countries around the world, the costs of collecting, transferring and disposing of solid waste are often shared between those generating the waste (i.e., households, commercial and industrial establishments) and governments. Government cost-sharing arrangements include matching grants from higher levels of government and general fund subsidies from local governments. Matching grants are used to induce local governments to provide a socially and environmentally desirable level of solid waste management, while general fund subsidies recognize the public good and equity aspects of solid waste management. Despite the prevalence of subsidies, adequate cost recovery is the key to both sustainability and private sector participation in solid waste management. (See presentations on Examples of Solid Waste Collection Arrangements in Burkino Faso (pdf)and Bosnia and Herzegovina: Solid Waste Sanitary Landfill (pdf).)

Lower Cost by Increasing Management Capacity

It almost goes without saying that one of the most important ways to improve solid waste management and finance is to improve the overall management capacity of municipal authorities and the corresponding municipal finance systems. In the latter case, it is especially important to improve service cost accounting and financial planning, in addition to introducing better cost recovery. Systems for full cost accounting must be established for effective cost recovery by local authorities. These accounting systems must have sufficiently detailed information to measure accurately the costs of operation and maintenance, billing, contract management (if appropriate), debt service and depreciation; and to distinguish among costs for residential versus commercial and industrial wastes. For these reasons, many Bank-supported solid waste management components are placed within broader municipal development or modernization projects.

Increase Revenue Through Careful Implementation of the “Polluter Pays Principle”

User charges are commonly utilized to recover a portion of the costs of solid waste management from those generating the waste. User charges can generate substantial revenues and provide incentives to minimize waste, especially if structured so that those who pollute more, pay more ("polluter pays principle"). Although user charges can be imposed at different stages of solid waste management (including collection and disposal), in many cities they do not cover the full costs of solid waste management activities. While citizens and enterprises are generally willing to pay for solid waste to be collected, they are often unwilling to pay the full cost of disposing of the waste in a sanitary manner. Experience in many countries has shown that charging the full costs of disposal may create incentives for littering and open dumping, especially if the enforcement of regulatory standards (i.e. no dumping) is weak and entities can avoid paying the user charge by disposing of the waste themselves.

Reinforce and Follow Through on Cost-Recovery Practices

Analysis of the financial records of many developing country cities shows that current practices for cost recovery for solid waste are very weak (recovery rates of less than 10 percent are not uncommon) and have substantial scope for improvement. Options to recover the solid waste service costs range from instituting or enhancing garbage taxes, collecting tipping fees, adding a surcharge to electricity or water supply billings, or relying on other general revenues (including the property tax and business licenses). Choosing among these options depends upon the relative importance of various criteria: whether revenues are adequate and easily collected, whether the polluter pays for the damage inflicted, whether the option is politically acceptable, and whether payment of the revenue can be enforced.